The Roller Coaster Economy: Financial Crisis, Great Recession, and the Public Option

The Roller Coaster Economy: Financial Crisis, Great Recession, and the Public Option

Howard J Sherman

Language: English

Pages: 197

ISBN: 0765625385

Format: PDF / Kindle (mobi) / ePub

Written by one of the foremost experts on the business cycle, this is a compelling and engaging explanation of how and why the economic downturn of 2007 became the Great Recession of 2008 and 2009. Author Howard Sherman explores the root causes of the cycle of boom and bust of the economy, focusing on the 2008 financial crisis and the Great Recession of 2008-2009. He makes a powerful argument that recessions and the resulting painful involuntary unemployment are inherent in capitalism itself. Sherman clearly illustrates the mechanisms of business cycles, and he provides a thoughtful alternative that would rein in their destructive effects.

Nearly 11 percent of families lived below the poverty level. For female-headed households, the numbers are even worse. In 2007, a little over 28 percent of female-headed households lived below the poverty threshold. Even more surprising is the number of working people who live below the poverty threshold. Just over 11 percent of people living below the poverty level worked year-round, full-time jobs. The average hourly wage (for nonsupervisory workers) in 1972 was $19.32. In 2007, thirty-five

many time lags when a decline of housing begins before it all can work its course. One major reason is that many projects are still in process when a downturn begins. So despite a housing decline, many construction sites would still be functioning. These must all be finished and on the market before it is possible to begin to reduce the number of housing units for sale. Housing construction and sales, therefore, do have a cycle of expansion and contraction, but these cycles often do not coincide

the economy to a speedier recovery. In most of the following expansions up until the peak, interest rates rise rapidly. The reason is the strong borrowing by consumers and corporations that was discussed in this chapter. The Federal Reserve also allows interest rates to rise because it believes that high interest rates might prevent the economy from rising so fast that it will create inflation. When a mild recession begins, interest rates usually go higher for a while. The reason is that both

same pace as total employee income. So credit represented the gap between income and consumption. The credit gap was the amount of new credit given out each year, showing that income was insufficient to fill the needs of consumers. Does credit do good or harm to the aggregate economy? By temporarily filling the gap between consumption goods and services marketed and the amount of consumer income, it kept the economy afloat. This credit growth did not happen only in the Bush expansion. For many

processes in expansion and the four processes in recession stated above can be generalized into four propositions that always hold because they reflect basic economic institutions: • Investment determines GDP. • GDP leads to certain patterns in revenues and in costs. • Aggregate cost and aggregate revenue determine business profit. • Profit determines investment, with a time lag. These four propositions provide a framework for a theory of the business cycle. Of course, there must be